Ecorys analyzed Armenia’s potential benefit from Europe

While the Russian government is directly or indirectly trying to keep Armenia from signing association agreement with Europe, and join the proposed Customs Union, Europeans have chosen a different strategy. Instead of showing the bad threats they are showing the good benefits Armenia may have. A recent analysis report published by Ecorys shows what Armenia may gain and what may lose in case of failure to sign DCFTA (Deep and Comprehensive Free Trade Area) agreement. DCFTA is a part of Association Agreement. Armenia and European Union successfully completed negotiation on association agreement on July 24. DCFTA is an economic component of the Association agreement and may open doors to a larger market for Armenia.

The European Commission has initiated research, implemented by Ecorys from the Netherlands, to find out what potential benefits Armenia and EU may have as a result of signing the mentioned documents. On its 209 pages the document estimates the potential benefits Armenia and EU may have, which can be downloaded from the following link address: 

Below are the key components in the research, according to separate sectors. This information will be useful for people who want to understand what closer relations with Europe may give to Armenia.

General macroeconomic effects

Ecorys believes both Armenia and EU will benefit from DCFTA. For example, as a result of signing this agreement in the long-term prospective EU will have more income by 74 million Euro, and Armenia will have more income by 146 million Euro. As the market of Europe is large compared to Armenia, Europe’s income growth percentage is not significant, however for Armenia it means economic growth by 2.3 percent. As a result of this agreement, in short-term prospective Armenia’s GDP will grow by 1.1%, and in the long-run – by 2.3%. As a result shifting tariff-related and other limitations bilateral trade will grow too. According to the research, after signing the agreement in long-term prospective Armenia’s export will grow by 15.2%, and import – by 8.2%. This means that Armenia’s trade balance will improve. As a result of signing this agreement, salary payments in Armenia will grow by 2.6 percent, and consumer prices will fall as a result of cancelling limitations. This will increase people’s purchasing power and incomes.

Production and services

The research analyzes separate sectors of the economy to find out the impact of the agreement on separate sectors of the economy such as production, etc. The highest growth potential is forecast for the sector of textile production. According to the report, in long-term prospective the growth of textile production in Armenia will be 207 percent, which will be stimulated as a result of raising tariff limitations. The next two sectors with the highest expected growth are “production of other machinery and equipment” and (50%) and “recreation and tourism services” (16%).

Products that may be affected by the agreement are vegetables, oil products and motor vehicles. According to the research, as these production sectors are small, the impact will not be significant.

The agreement will have positive influence on the sectors of public and communal services as well. However, the agreement may have small negative influence on the sectors of financial services, insurance, production of food and beverages.

Trade sectors

According to the research, the highest export growth will be provided by the sector of textile production (5.8%). Export of metals and services will benefit as well.

In relation to import and export, EU’s export of food products to Armenia, as well as Armenia’s export of beverages, cigarettes and chemical products will grow.

Social impact of DCFTA

According to the research, expected changes in prices and salaries are the main driving force of DCFTA as those directly influence on incomes and poverty level. Reduction of average prices and growth of salaries will have positive social consequences. It is expected that in long-term prospective the average purchasing power will grow by 2.5%. However, the report writes that growth of incomes will be disproportional as wealthier groups of the society will have more income growth than others. This means inequality will grow, however it will not be significant as the purchasing power of socially vulnerable groups will grow too. Even though the overall average prices will fall, the prices of food will not change. According to the research, as a result of signing DCFTA, the level of poverty in Armenia will improve by 1.4%.

An important consequence of the agreement will be availability of new jobs. It is expected that the number of jobs for skilled specialists will grow by 7%. In addition, the agreement will improve protection of economic and social rights.

The report writes that the analyses in the report are estimations and certain actions may either improve or affect the expected achievements. For example, the report recommends improving the business environment and providing better opportunities for small and medium businesses.

Impact on third countries and side effects

The report suggests that liberation of trade between Armenia and Europe will have very small impact on Armenia’s main trade partners. This means that third countries do not economically suffer from the prospect of development of economic relations between Armenia and EU. It is worth mentioning that the report covers the consequences of the agreement only in the context of relations with Europe but they have not taken into consideration the effects Russia may “present.” In case of signing the agreement Russia threatens to undertake measures, which may look like a trade war. In other words, Armenia will benefit from signing the agreement with Europe, however there will be side effects and bonuses such as deportation of Armenian labour migrants from Russia, reduction of money transfers, entry visa limitations, restricted conditions of bilateral trade, etc. These measures will certainly impact Armenia, however, the report does not cover this topic. It is not excluded that such report may be published by the proposed Customs Union, too. However, it is Armenia that should do similar research to discuss and understand the positive and negative effects of either agreement. Unfortunately, such research either is not planned or is not made public.

By Babken Tunyan